Spot the hallmarks of an excellent tenant

There’s over 7,000 square metres of commercial property for lease in New Zealand, according to realestate.co.nz data. Every inch of that space represents an opportunity for tenants to further their businesses, and for landlords to strengthen their investments.

However, this mutually beneficial relationship only works if you pick a quality tenant in the first place. Look for these hallmarks of an excellent commercial tenant when you’re choosing yours, and you’ll give your investment the best chance to grow.

1. They’re suitable for your property

If your property doesn’t have what your tenant needs then the relationship is unlikely to work out in the long term. That’s because they’ll likely move on quickly, or their business may suffer making it difficult to pay rent.

It’s ultimately the tenant’s responsibility to decide whether or not the property is right for them. However, it’s worth speaking to them to make sure.

Talk to your prospective tenants before deciding. Learn what exactly they need in a space, how much space they need, what they don’t like about your property, how fast they’re growing and what their plans for the future are. Check with the council that your property is zoned for their business activities. Ultimately you should aim to find a tenant whose business will genuinely benefit from the tenancy.

2. Their business is stable

If a tenant signs a lease and can’t afford it down the track it could cost you a lot of money and time. It’s a good idea to request their financial records and have your accountant inspect their contents to help make sure they can afford to pay the rent.

If they’re not willing to disclose this information, an informal conversation between their accountant and yours may suffice. Alternatively, requesting that they provide a bank guarantee of six months’ rent will ensure you don’t sustain losses if they default.

For an extra layer of protection you can also request that the company’s’ director provide a personal guarantee. This will mean that if the company becomes insolvent the director will be personally responsible for any money owed under the lease agreement.

3. They have good rental history and reputation

To make sure you’re picking a good commercial tenant, checking their rental history and their business’ reputation is a great idea. Speak to their current or past landlord if possible and ask how they were as tenants and if they paid rent on time.

If you want to know more you can ask the landlord if you can inspect their current premises to see how they keep the property. The more you can find out the better, as it will help you avoid any unfortunate surprises down the track.

If your tenant isn’t suitable for the area they may not stay for the long term.

4. Their business compliments the area

Most commercial premises do not exist in a vacuum. They’ll have neighbours, and possibly even other businesses operating above or below. The best tenants are those whose businesses fit in well with the surrounding area and improve it with their presence.

Companies with strong brands, whose businesses are similar or complementary to those around them are what you need. On the other hand, if their business is likely to cause a nuisance to other tenants through noise, mess or other issues they’re not the right choice. Putting a heavy manufacturing tenant next to a yoga studio is clearly a bad idea, for example.

If you take a little care when selecting your tenant your investment will thrive.